BUDGET

Furloughs Come to Main Street

Automatic spending cuts will affect federal workers wherever they live””even thousands of miles from Washington.

Nancy Cook
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Nancy Cook
Feb. 28, 2013, 3:10 p.m.

Wash­ing­ton is the cap­it­al of the fed­er­al work­force, so it’s un­der­stand­able that fur­lough fright is strongest here. What will hap­pen to the tide of com­muters cours­ing along K Street or Rock Creek Park­way every morn­ing? But for fed­er­al agen­cies, the se­quester is mani­fest des­tiny. The U.S. gov­ern­ment’s work­force is scattered across the coun­try, and the auto­mat­ic spend­ing re­duc­tions that be­gin Fri­day could af­fect em­ploy­ees all the way to New Mex­ico, Texas, and Alaska. Any pay cuts will ripple through the broad­er eco­nomy, cre­ate yet an­oth­er drag on growth, and hurt state and loc­al gov­ern­ment cof­fers.

Only 320,000 of roughly 2.1 mil­lion fed­er­al jobs — 15 per­cent — were loc­ated in the great­er Wash­ing­ton area as of Septem­ber 2012, ac­cord­ing to the Of­fice of Per­son­nel Man­age­ment. The oth­er 1.78 mil­lion re­port in large num­bers to jobs in Cali­for­nia, Flor­ida, New York, North Car­o­lina, Ohio, Pennsylvania, and Texas. These men and wo­men work at mil­it­ary bases, at re­gion­al of­fices for So­cial Se­cur­ity and the Labor De­part­ment, as bor­der-patrol of­ficers, and at na­tion­al labs.

On av­er­age, the typ­ic­al fed­er­al work­er is 46 years old and earns $75,000 per year. The law says that work­ers can be asked to take up to 22 un­paid days off. Between now and the end of the fisc­al year on Sept. 30, that would mean a 20 per­cent pay cut per work­er, says Nigel Gault, chief U.S. eco­nom­ist for IHS Glob­al In­sight, a mac­roe­co­nom­ics fore­cast­ing firm. “That is enorm­ous for people,” he says. “They’ll have to cut back.” They’re like­li­est to tight­en the belt on en­ter­tain­ment, trans­port­a­tion, food, house­hold sup­plies, and oth­er types of con­sumer spend­ing.

Just ask 33-year-old Ry­an Gib­son about the im­min­ent threat. The of­ficer in the Home­land Se­cur­ity De­part­ment’s Cus­toms and Bor­der Pro­tec­tion unit is based in De­troit. His wife is a school­teach­er. They’re a middle-class fam­ily with two chil­dren, ages 8 and 5. In his spare time, he likes to see movies or catch a Ti­gers game, but he says fur­loughs will force him to change his spend­ing habits. He doesn’t look for­ward to the pro­spect of hav­ing to choose be­-tween an oc­ca­sion­al trip to the movie theat­er and the fee for his son’s hockey team. “I’m hold­ing out hope that we won’t have to deal with this,” Gib­son says in a tele­phone in­ter­view. “The only guid­ance we’re hear­ing is that we’re go­ing to have a have a 14-day fur­lough. It’s frus­trat­ing “… be­cause we don’t have any an­swers.”

The sense of un­cer­tainty is bad enough for fed­er­al em­ploy­ees across the coun­try, but their job cut­backs could also take a bite out of their loc­al eco­nom­ies. First, re­duced spend­ing on con­sumer goods would lower states’ and mu­ni­cip­al­it­ies’ in­come-tax and sales-tax rev­en­ues. “I pay De­troit city taxes out of my paycheck,” Gib­son says about his ho­met­own, where the un­em­ploy­ment rate was 11.4 per­cent in Decem­ber.

Second, se­quester cuts would re­duce fed­er­al spend­ing on con­tracts and salar­ies. Roughly 13.3 per­cent of the loc­al gross do­mest­ic product in Alaska, for in­stance, comes from fed­er­al pro­cure­ment and salar­ies, ac­cord­ing to an ana­lys­is by the Pew Cen­ter on the States. Oth­er state eco­nom­ies that de­pend on fed­er­al con­tracts and salar­ies for a sig­ni­fic­ant share of eco­nom­ic growth in­clude New Mex­ico (12.8 per­cent of the state’s GDP), Alabama (8.9 per­cent), and South Car­o­lina (7.4 per­cent). Over­all, states rely on fed­er­al grants for about one-third of their rev­en­ue, mean­ing that even a small fal­loff can have big re­ver­ber­a­tions.

“The fact that fed­er­al gov­ern­ment activ­ity plays a large eco­nom­ic role puts some states in a tough po­s­i­tion when they’re try­ing to plan and budget,” says Anne Stauffer, pro­ject dir­ect­or for the Pew Cen­ter on the States. If the fed­er­al gov­ern­ment em­ploys a large per­cent­age of work­ers in a state, it’s hard to es­tim­ate how much the state gov­ern­ment will be able to col­lect from them in taxes. And, of course, states could take an ad­di­tion­al hit in cuts to fed­er­ally fun­ded pro­grams for edu­ca­tion, men­tal health, and child-care as­sist­ance.

Worst of all, the threat of these fur­loughs and their pos­sible ef­fect on loc­al eco­nom­ies ar­rives just as states are be­gin­ning to re­cov­er from the re­ces­sion. While the fur­loughs won’t cost fed­er­al work­ers their jobs or drag the coun­try back in­to a re­ces­sion, se­quest­ra­tion will slow eco­nom­ic growth by as much as 0.6 per­cent in 2013, ac­cord­ing to Mac­roe­co­nom­ic Ad­visers. The fur­loughs are just one of the in­gredi­ents of the across-the-board budget cuts.

The trick­i­est part of fur­loughs is that their full im­pact won’t be known un­til sum­mer. If they don’t be­gin un­til April — a pos­sib­il­ity, as agen­cies are still sort­ing out what the se­quester will mean for them — ana­lysts say monthly eco­nom­ic data should be­gin to show the fal­lout in Ju­ly and Au­-gust. “The eco­nom­ic ef­fects of se­quest­ra­tion will not be wide­spread at first,” says eco­nom­ist Mark Zandi. “But over time, as you move in­to the sum­mer months, the eco­nomy will start mov­ing more slowly.” And the slow­down will be na­tion­al, mir­ror­ing the pro­file of the cuts, not just centered in Wash­ing­ton.

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